In April, the All Urban Consumers (CPI-U) rose 0.4% on a seasonally adjusted basis, which was lower than expected. The increase was mainly due to the rise in housing, followed by the index for fuel and used automobiles and trucks. The food index remained the same, with a decrease of 0.2% in food consumed at home, and an increase of 0.4% in food consumed away from home. These numbers indicate a cooling in inflation, which might lead to a pause in interest rate hikes by the Federal Reserve.
The Fed's Reaction to the April US Inflation Numbers
During its previous FOMC meeting, the Fed did not disclose whether it will increase, decrease, or pause interest rates. Fed Jerome Powell indicated that they might be done with rate hikes, but the latest inflation numbers might lead to a pause in interest rate hikes. This might cause investors to breathe a sigh of relief and increase investments. However, the Fed has set an inflation target of 2%, which is twice the current number.
Rate of Price Increases Decreases
The rate of price increases has significantly decreased since the 40-year highs reached last summer. Investors have long believed that a halt in efforts to reduce inflation would be followed by a series of rate declines. However, Powell indicated that it might not be wise to lower rates if prices take time to drop.
